Miltmar Corporation will pay a year-end dividend of $5, and dividends thereafter are expected to grow...
|
Miltmar Corporation will pay a year-end dividend of $5, and dividends thereafter are expected to grow at the constant rate of 6% per year. The risk-free rate is 5%, and the expected return on the market portfolio is 10%. The stock has a beta of 0.76. |
| a. |
Calculate the market capitalization rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Market capitalization rate | % |
| b. |
What is the intrinsic value of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Intrinsic value | $ |
Homework Answers
a). Market Capitalization Rate = k = risk-free rate + [beta * (expected market return - risk-free rate)]
= 5% + [0.76 * (10% - 5%)] = 5% + 3.80% = 8.80%
b). Intrinsic Value = V0 = Next Dividend / (k - growth rate)
= $5 / (0.0880 - 0.06) = $5 / 0.028 = $178.57
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